Of all the mutual fund sector categories, real estate has to be the one where the averages are most misleading. As a group, real estate funds have delivered a consistently high rate of return over the past five years through May, 2005. Their one, three and five-year average annual compound returns of 17.32%, 9.60% and 10.17% respectively placed them fourth among 34 fund categories over each time frame.

Taken individually, however, real estate funds as well as their relative performance have been anything but consistent. During the year ended May 31, for example, returns ranged from a high of 29.20% for the Sentry Select REIT Fund to a low of 5.58% for the Great-West Life Canadian Real Estate NL Fund.

Three-year compound annual returns ranged from a high of 15.38% for the Dynamic Focus+ Real Estate Fund to a low of 4.07% for the London Life Real Estate Fund.

Five-year returns (for the nine real estate funds with five-year track records) ranged from a high of 16.38% for the Dynamic Focus+ Real Estate Fund to a low of 5.39% for Great-West Life's Canadian Real Estate NL Fund.

The four Real Estate Funds with 10-year track records (Dynamic Global Real Estate Fund, Great-West Life's two Canadian real estate funds and Investors Real Property Fund) delivered an average 10-year annual compound return of 7.68% through May, 2005. That placed them 7th in performance among the 34 categories, behind most Canadian equity categories.

There does not seem to be much consistency in terms of asset mix. Some of these funds hold Canadian real estate income trusts (REITs) exclusively; some hold a mix of REITs and equities; and among those funds with foreign exposure, Canadian content ranges from 5.94% for the Mackenzie Universal World Real Estate Capital Class to 79.40% for the CIBC Canadian Real Estate Fund.

There is, however, some consistency in terms of winners and losers. While most of these funds have been very good performers over the one-, three- and five-year periods, the Great-West Life, London Life and Investors funds have not performed as well as their peers, dragging down the group averages significantly.

If these funds were eliminated from the performance calculations, the group averages would have been closer to the S&P/TSX capped real estate total return index's one-, three- and five-year returns of 20.78%, 19.98% and 18.63% respectively. (At these levels, the real estate category would have placed in the top three over all three time frames).

As for the winners, these are fairly consistent, too, at least among those with more than a one-year time frame. Within the group, the Sentry Select REIT Fund, CIBC Canadian Real Estate Fund and Dynamic Focus+ Real Estate Fund were very close to ranking one-two-three over the one-, three- and five-year time frames. But they still trailed the S&P/TSX real estate index over the three- and five-year time frames.

In addition to those three winners, four new real estate funds delivered very respectable one-year returns, averaging 26.11% through May 31. It remains to be seen, however, whether they can achieve such superior performance over the long term.

The conclusions to be drawn from all of this? If you want to diversify into real estate mutual funds, make doubly sure you pick the right one, or preferably a few of them.

The ideal choice, of course, would be to buy the category index itself, although the Index proxy -- the iUnits S&P/TSX Capped REIT Index Fund -- outpaced its counterpart over the short term, with a one-year return of 26.66%, placing it second in the category over that time frame.